Under the IRS OVDP (7/1/14) the IRS may criminally prosecute:
1) If the IRS already has taxpayer name disclosed by either the foreign financial institution, the facilitator, under a tax treaty, or by a “whistleblower”;
2) If the taxpayer is not accepted in the OVDP because unknown to them they are already under IRS criminal investigation or are currently under IRS audit (See FAQ #14).
3) Or if the IRS rules taxpayer is part of an ineligible class: see FAQ #21: an otherwise eligible tax payer may become ineligible if the IRS determines “that certain taxpayer groups that have or had accounts held at a specific financial institution will be ineligible due to specific US government actions in connection with the specific financial institution.
See: Case of Israel’s Bank Leumi where hundreds of US taxpayers were thrown out of IRS/OVDP with no public verification of their current status, to date.
All Account Statements
Under the OVDP (FAQ #25(h): taxpayer must provide copies of all statements for all financial accounts reflecting all account activity for for each of the tax years covered by the voluntary disclosure. Under FAQ #30, if a taxpayer is having trouble obtaining records from overseas the IRS advises they “should carefully document their attempts”.
Although this IRS advise may be wise advice it does not exonerate the taxpayer who is unable to retrieve these overseas records. Difficulties retrieving overseas records include: non-co-operation by the overseas bank, “revolving door of bank personnel who have “knowledge” of the requested records, bank legal departments who may advise the bank to refuse the requests (or face co-conspirator tax felonies for tax evasion), lack of enforceability of US court orders in a foreign jurisdiction (which requires filing a foreign court action with no guarantee of success despite expensive costs), or the bank is shuttered and out of business (See the case of Swiss bank, Wegelin bank oldest bank in Switzerland since 1741, who went out of business circa 2013 after pleading guilty to US tax crimes).
The risk is clearly stated by FAQ #3: “The Voluntary Disclosure Practice is a long-standing practice of IRS Criminal Investigation whereby CI takes timely, accurate and complete voluntary disclosures into account in deciding whether to recommend the Dept. of Justice that a taxpayer be criminally prosecuted”.
The bottom line risk: taxpayer is unable to get overseas records, the IRS determines that the voluntary disclosure is incomplete and decides to criminally prosecute (after the big up front payment is made).
So the “Big 3 risks” are: 50% penalties (which may wipe out the account), all $ paid up front (for tax, interest, penalty), and the requirement of complete account statements all tax years.
Is the risk and the perils worth the cost?